NEW COMPETITION LAW EXPECTED TO HAVE LITTLE IMPACT

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001854

SIPDIS

STATE FOR EAP/CM AND EEB/BTA/TPP, STATE PASS FTC FOR THOMAS
ROSCH, DOJ FOR STUART CHEMTOB

E.O. 12958: DECL: 05/15/2019
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: NEW COMPETITION LAW EXPECTED TO HAVE LITTLE IMPACT
ON HONG KONG BUSINESSES

REF: A. 08 HONG KONG 1402

B. 08 HONG KONG 708

Classified By: A/CG Christopher Marut for reasons 1.4 (b) and (d).


1. (C) Summary: A senior Hong Kong government (HKG) official
told U.S. Federal Trade Commissioner J. Thomas Rosch on
September 10 that a long-anticipated Competition Law will
likely be submitted to Hong Kong's Legislative Council
(LegCo) during its upcoming session. The official said the
law should, however, have little impact on "business
dynamics" here. A LegCo member expressed disappointment that
the HKG intends to exclude government-owned enterprises from
the law's purview. The HKG draft bill will also largely
ignore corporate merger and acquisition activity and contain
no criminal penalties for anti-competitive behavior. Calling
the HKG's efforts "a good start on a relatively blank slate,"
Rosch acknowledged the difficulty of enacting a new statute
that potentially affects many powerful constituencies. He
told members of the American Chamber of Commerce (AmCham)
that the Federal Trade Commission (FTC) intends to publish
new Merger Guidelines by 2009 year-end, and he voiced his
opposition to Obama administration plans to create a Consumer
Financial Protection Agency. End summary.

Background
--------------


2. (U) Commissioner Rosch met with Hong Kong government
officials, academics and AmCham members on September 10-11 to
discuss Hong Kong's proposed Competition Law and offer
recommendations concerning its provisions. He also spoke to
approximately 150 Hong Kong University law students about the
FTC's anti-trust activities. Other than restrictions placed
on the telecommunications and broadcasting sectors, Hong Kong
has no specific law that addresses anti-competitive corporate
behavior such as price fixing, bid rigging and
monopoly-building (ref A). Responding to local concerns
about such practices, the HKG initiated public consultations
in 2006 regarding its proposed Competition Law. The ensuing
debate among large companies, SMEs, consumer advocates and
the general public regarding the statute's provisions has
delayed presentation of a bill to the LegCo (ref B).

Key LegCo Player Describes Frustration With Competition Law
-------------- --------------


3. (C) Hong Kong LegCo member and former Chairman of the Hong
Kong Bar Association Ronny Tong has supported enactment of a
competition law since his election to the LegCo in 2004. He
regularly provides advice to the HKG's Commerce and Economic
Development Bureau (CEDB),as it fine tunes provisions to be
included in the Competition Law bill. In his September 10
meeting with Rosch, Tong said he expects the bill to be
submitted to the LegCo during the 2009-2010 legislative
session that begins in October. As one of the bill's key
advocates, Tong is concerned that it may not adequately
restrict anti-competitive practices. He said, "I've been
forced to give up much, in order to move the process
forward."


4. (C) Rosch said he reviewed the HKG's latest publicly
available Competition Law proposals, as well as the American
Bar Association's written feedback on them. He encouraged
Tong's efforts and noted the difficulty of enacting such
controversial legislation, especially given Hong Kong's
paucity of existing statutes and regulations governing
anti-competitive corporate behavior. Rosch cautioned,
however, that Hong Kong's Competition Law would be "rather
unique worldwide" if, as currently envisioned, it fails to
stipulate criminal penalties for corporate cartel-like
behaviors such as price fixing, bid rigging, and dividing up
customers and markets.


5. (C) Tong expressed frustration that neither the HKG nor
government-owned institutions will likely come under the
Competition Law's purview, despite their involvement in
"unfair competition" with private sector entities. As an
example, he described complaints from the public-private
consortium that owns the AsiaWorld-Expo convention center
near the Hong Kong International Airport. After granting
locally-owned New World Corporation a 40-year concession in
1988 to develop and manage the Hong Kong Convention and
Exhibition Center (HKCEC),Tong said the HKG's Trade
Development Council (TDC) has channeled all
convention-related inquiries and business opportunities to

HONG KONG 00001854 002 OF 002


the HKCEC. "They charge too much and it's difficult for
event organizers to get the dates they want. The government
should allow the new market entrant to compete on an equal
footing with the HKCEC," he said. The new statute will
likely provide little recourse for AsiaWorld-Expo to
challenge TDC's actions, according to Tong.

Professional Experience Needed, Says Rosch
--------------


6. (C) CEDB Under Secretary Greg So told Rosch that "the bill
is almost ready" and the HKG wants to present the Competition
Law to the LegCo by 2009 year-end. (Note: In a subsequent
meeting on September 28 with the Acting Consul General, So
suggested the bill will be presented by July 2010 - the end
of the upcoming legislative session. End note.) So asked
Rosch for advice concerning the HKG's plans to establish an
independent review commission under the Competition Law.
Rosch said the HKG should mandate minimum professional
experience requirements for the new entity's commissioners,
to avoid creation of a "dumping ground" for unqualified
political appointees. "Reliance on the commission's
professional staff alone can be insufficient, and you'll need
highly qualified commissioners to ensure success," he said.



7. (C) So admitted that the HKG "does not want to do anything
to materially change the business dynamics" in Hong Kong.
Given the HKG's inexperience in prosecuting cases involving
anti-competitive behavior, So said the government wishes to
avoid prosecuting most Competition Law offenders. The CEDB
has therefore included an "Infringement Notice Scheme" in the
draft bill's text, under which the HKG will offer violators
an out-of-court settlement fine of up to USD 1.3 million (HKD
10 million). Rosch said the FTC formerly used a similar
notice-without-trial scheme, albeit without the power to fine
the accused infringer, but discontinued the practice after
being accused by industry watchdog groups of giving violators
"get out of jail free cards." Rosch agreed to provide
further advice and other assistance that may be requested by
So, as the CEDB continues its work on the Competition Law.

FTC Under Obama Administration
--------------


8. (U) Rosch told AmCham Trade and Investment Committee
members on September 11 that the FTC under the Obama
administration "is trying a lot more cases" than in prior
years. To boost its prosecutorial success rate, the FTC has
engaged experienced private sector litigators to mentor FTC
staff lawyers and "battle the best and brightest lawyers from
large law firms" hired by defendants in FTC-initiated
lawsuits. Rosch said the FTC has also increased challenges
to "already consummated mergers," and he said the FTC intends
to publish revised merger guidelines by 2009 year-end that
will include "some fairly major changes."

Rosch Opposes Creation of CFPA
--------------


9. (U) In an interview with Reuters and during his September
11 meeting with AmCham members, Rosch voiced his strong
opposition to the Obama Administration's June 2009 proposal
to create a Consumer Financial Protection Agency (CFPA). He
told AmCham, "The FTC and other existing government bodies
can adequately protect consumers in this area, and it's a bad
idea to set up a whole new agency to handle it."


10. (U) FTC Commissioner Rosch has cleared this cable.
MARUT